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- 1 Bitcoin’s extended inverse head-and-shoulders pattern increases the potential for a significant trend reversal.
- 2 Institutional interest in long-term patterns may fuel sustained Bitcoin price momentum.
Bitcoin has been trading differently for the past few months after a significant sell-off in 2022. However, some analysts are hoping that Bitcoin is primed for a potential bullish breakout in the near future. One of those sharing a bullish outlook is technical analyst Jason Pizzino.
Pizzino sees Bitcoin forming an inverse head-and-shoulders pattern on the weekly chart, which is considered a bullish reversal indicator. This pattern suggests that Bitcoin could be gearing up for substantial gains if validated with a break above the neckline.
The Inverse Head-and-Shoulders Pattern
The inverse head-and-shoulders is a classic reversal pattern used widely in technical analysis. It is formed after a sustained downtrend and indicates a potential trend reversal to the upside.
The pattern contains three swing low points forming the “shoulders” and a lower “head” between them. The neckline connects the tops of the two shoulders. When the price breaks the neckline on significant volume, it signals the pattern completion and the start of an upward move.
For Bitcoin’s weekly chart, Pizzino identifies the left shoulder formed in June 2022, the head in November 2022, and a developing right shoulder. The neckline currently sits around $25,000, which also coincides with Bitcoin’s 200-week moving average.
Analyst, Jason Pizzino, believes a decisive break above the $25,000 neckline could confirm Bitcoin’s inverse head-and-shoulders pattern and generate significant upside momentum. This breakout would indicate bulls have overwhelmed bears at a key zone coinciding with the 200-week moving average. Validating major chart patterns often ignites directional follow-through as traders jump in.
Additionally, Pizzino notes similarities between the current inverse head-and-shoulders and the pattern that preceded Bitcoin’s bull run starting in 2020. Back then, breaking the neckline catalyzed an almost vertical uptrend to a new all-time high.
While past performance doesn’t guarantee future results, Pizzino thinks Bitcoin could see comparable explosive gains if the current pattern completes and is confirmed with a breakout in the coming months.
Measured Move Target
In addition to signaling a trend reversal, inverse head-and-shoulders patterns can provide potential upside targets based on the height of the head segment. This is known as the “measured move” projection.
For Bitcoin, the measured move takes the height of the head at around $9,000 and projects it above the breakout point. This gives a target of approximately $34,000 if the neckline is surpassed.
However, Pizzino notes targets based on chart patterns often undershoot or overshoot, so the measured move should be viewed as a general guide rather than an exact objective. Nevertheless, it provides context on the potential magnitude of Bitcoin’s move if the inverse head-and-shoulders pattern completes.
Timeliness of the Pattern
One key factor that lends credibility to Bitcoin’s potential inverse head-and-shoulders pattern is the extended timeframe over which it has formed. This pattern has been developing on the weekly chart for nearly a full year, beginning in mid-2022, and still evolving.
According to analyst Jason Pizzino, this lengthy formation period increases the validity and significance of the pattern compared to patterns that take shape over just weeks or months. The long-term nature of Bitcoin’s price action provides greater confirmation that a significant reversal may be ahead.
Specifically, Bitcoin’s extended consolidation between $17,000-$25,000 shows substantial base building and balance between buyers and sellers in that price range. This battled zone indicates both bulls and bears are trying to gain control, but neither has overpowered the other.
Lengthy periods of balance like this bolster the chances of an eventual strong breakout move when one side finally gains dominance. The multi-month struggle makes an upset victory more likely when it arrives. This adds credence to the inverse head-and-shoulders reversal.
In addition, long-term chart patterns tend to attract interest from serious institutional investors and hedge funds rather than short-term speculators. These large players act as the “smart money” and move markets meaningfully when they identify high-probability setups.
Their preference for long-term patterns implies that if Bitcoin’s weekly inverse head-and-shoulders are completed, significant buying from institutions could kick off the trend reversal. This buying power makes the breakout more likely to sustain.
For these reasons, Pizzino views the developing inverse head-and-shoulders on Bitcoin’s weekly timeframe as more influential and noteworthy than shorter-term patterns. The extended formation period, basing process, and potential institutional interest all signal that this pattern may mark the end of Bitcoin’s bearish trend if confirmed.
Wait for Confirmation
Despite the bullish indications, Bitcoin investors should wait for definitive pattern confirmation before anticipating major gains. A clear break and weekly close above the neckline of around $25,000 needs to occur before the upside implications can be considered.
Jumps above the neckline that lacks follow-through indicates bulls may not be ready to take control. Strong buying volume on the breakout would add confidence the pattern has truly been validated.
Pizzino suggests using pullbacks to the neckline after an initial breakout as possible long-entry opportunities. This allows traders to get confirmation before putting on bullish positions.
With Bitcoin still trading below the neckline, the inverse head-and-shoulders remain in development. But Pizzino sees enough evidence to suggest the pattern may be nearing completion. Bitcoin’s multi-month consolidation phase could transition to a new bull market if validated.
Conclusion
While never guaranteed, chart patterns that form over long periods can signal high-probability setups. According to Pizzino, Bitcoin has the ingredients for a significant trend reversal if crucial resistance near $2While there are no guarantees in trading, chart patterns that develop over extended timeframes often serve as indicators with higher likelihood. As suggested by Pizzino, Bitcoin exhibits favorable conditions for a notable reversal in its trend if it manages to surpass the pivotal resistance level of $25,000.5,000.
By waiting for confirmation instead of anticipating the breakout, traders can use the inverse head-and-shoulders pattern to plan for the upside while managing risk. The measured move gives an approximate profit target. As with any technical indicator, confirmation from price action is required before betting on pattern completion and the resumption of Bitcoin’s bullish run.
Andrew is a blockchain developer who developed his interest in cryptocurrencies while pursuing his post-graduation major in blockchain development. He is a keen observer of details and shares his passion for writing, along with coding. His backend knowledge about blockchain helps him give a unique perspective to his writing skills, and a reliable craft at explaining the concepts such as blockchain programming, languages and token minting. He also frequently shares technical details and performance indicators of ICOs and IDOs.
